Chabahar Port, India’s tit-for-tat for US’ rat-a-tat

US President Donald Trump’s waiver to India for the ongoing project in Chabahar port in Iran was a relief to New Delhi. Especially because this waiver comes in addition to the six-month relief from sanctions on the import of Iranian oil granted to seven other countries.

Chabahar has been belatedly recognised by the US State Department as another important gateway to Afghanistan that could reduce its dependence on Karachi in Pakistan. Even more surprising is that the US has still not reacted to India’s decision to buy the S-400 Triumf missile defence system from Russia, despite the Countering America’s Adversaries Through Sanctions Act (Caatsa). Even though Trump has ominously declared a ‘wait’n’watch’, thereby hanging a sanctions sword above India’s head.

So why is Trump being so generous? And what’s in it for the US? To say that this waiver is meant to enhance India’s role in Afghanistan – in accordance with the National Security Strategy (NSS) announced by Trump in December 2017 – sounds rather suspect. As The New York Times commented, “…the intellectual content of that strategy was at sharp variance with his unpredictable, domestically driven, Twitter-fuelled approach to foreign policy”. Such being Trump’s style of functioning, New Delhi should be wary of the present White House whose Cabinet members sign treaties, while the president imposes sanctions through midnight tweets.

The only possible answer is that the US government is waiting for India to announce mega defence deals to appease the irate god in the White House. One should go back to the recent proceedings of the 2+2 Dialogue between India’s foreign and defence ministers with their US counterparts held in September. This meeting resolved India’s objections to the Communications Interoperability and Security Memorandum of Agreement (Cismoa), and came up with a more accommodating Communications Compatibility and Security Agreement (Comcasa).

‘Interoperability’ has always been regarded as an offensive term that puts India in the position of a supplicant, or underling, of the US. It has, therefore, raised a lot of hue and cry. That is because the template of interoperability is well-known and available in the US’ defence partnership with non-Nato countries like Brazil, Morocco and South Korea. So, replacing it with Comcasa, whose nature and scope is safely hidden in a classified document, is more practical.

Since 2008, India has signed up for more than $15 billion in arms with the US for the C-17 Globemaster and C-130J transport planes, P-8I maritime reconnaissance aircraft, M777 howitzers, Harpoon missiles, and Apache and Chinook helicopters. This order book is set to see a further hike with the US likely to accept an Indian request for Sea Guardian drones. In addition, US Defence contractors such as Lockheed Martin and Boeing are also strong contenders for a number of high-profile arms deals, including the recently floated tender notices for 110 fighter planes for the Indian Air Force, 57 multi-role carrier borne fighters (MRCBFs) for the Indian Navy, and 234 naval utility and multi-role helicopters.

With such huge orders in the pipeline, any US administration would be severely restrained in annoying New Delhi, whatever be the latter’s relations with Iran or Russia. The underlying US ‘India policy’ norm is that New Delhi reduces its dependence on Iran for oil imports and with Russia on defence imports, and replace them with Saudi Arabia and the US. How India will continue to juggle four balls in the air – and for how long – will test the agility of its foreign policy.

Four months ago, in an article I had given some warnings about large economic events and related pressures. These include the rising oil prices and the negative impact of international business jung and the emergence of capital in some emerging countries including India, along with some major weaknesses in the medium term in the macroeconomic situation of the country. In this article I also talked about long-standing crisis in government banks in the country and a huge drop in foreign trade, which was largely due to the stagnation in commodity export of the country. Both of these factors continue to pressurize the country’s macroeconomic stability even today. The combined revenue deficit of the Center and the State is now at 7% of GDP. Production of small enterprises and unorganized sector, Banking on employment and exports has made a bad impact. In the past few months, two new contrasting circumstances have arisen, which have raised the concern of economic managers of the country.

The first such incident is the defaults in many cases of debt repayment by the Infrastructure Leasing and Financial Services (IL & FS) group. There are about 350 companies in this important group. Due to these reasons, the AAA category rating of the group fell to junk category in a few weeks. There is a debt of over Rs 90,000 crore on the group, and this has given a major setback to the financial sector. Other non-banking financial companies (NBFCs) have also been affected. Many of them are now struggling to raise money to run their jobs. This is the reason why the NBFC loan, including housing finance companies, was growing at a rate of up to 25 percent in the recent years and it was equal to one quarter of the banking loan, There has been a decline in it again. It has an impact on economic activities too. Many of these are now taking short-term loans to meet the needs of medium and long term loans. There is considerable pressure in the NBFC sector.

The upheaval of IL & FS has worked to erase the prestige and ability of the ownership institutions like Life Insurance Corporation and State Bank of India. Credit rating agencies, statutory auditors and regulators, Reserve Bank etc. are all in this scope. RBI allowed IL & FS Financial Services Ltd, a major subsidiary NBFC to work for three consecutive financial years with outstanding debt and investment of more than Rs 5,000 crore. It is 20 times more than the fixed limit, according to RBI guidelines itself.

To reduce the loss and continue work, the government intervened on 1 October and dissolved the old board of IL & FS and constituted a new board headed by senior bank Uday Kotak. However, the extent to which this group works, the complexity of its structure and the ambiguity in which it has been working in the past, this question remains intact that when and how much control can be done on the loss? The second negative incident is the public dispute between the government and the RBI. This is extremely dangerous thing. In many countries including India, there is a degree of confrontation between the government and the central bank. It must also be acknowledged that we have seen long periods of cooperation between the government and the RBI. During this time, all economic, banking and financial reforms were exposed and the country was successful in recovering from the crisis. For example, I would like to remind myself of the years between 1991 and 2008. There are four elements of beneficial cooperation between the two:

The distance between the two is currently visible and which has become public with the media and other means, it is not fair. Such situations are not made overnight. Its background was getting ready for two years. During this time the positive things mentioned above were reduced, while some other complicated things got added. These include the poor condition of government banks, new challenges arising out of the NBFC loan, lack of communication of the top leadership of the RBI, increased pressure on government treasury, clear signs of slowdown in employment growth, weak external areas and adjacent elections etc. In view of this, the government wants to use RBI’s currency reserves. RBI is against it and given its commitment to financial stability, it can be understood.

If continuous communication between the finance ministry and the RBI remains in place, then there would be some kind of agreement till now. If this still happens then it will be better for the economy and the country. However, after the exchange of formal letters on several major issues, Section 7 of the RBI Act was mentioned, the RBI meeting was on October 23 and the Deputy Governor of RBI on October 26 gave a very vocal speech in the autonomy of the RBI. The government warned against interference. This made it difficult to reach any conclusions. There may be more in the next meeting of the RBI on November 19. RBI governor’s resignation, Assuming the demand of the government of the RBI or the use of Section 7 by the government formally and reluctant to accept the RBI’s acceptance even if it is reluctant, etc. Many results can be seen. This is not a very positive situation in the pressure of global instability and pressure on the macro economics.

This mixture of macroeconomic, financial and regulatory issues is quite fatal. With this, before the important elections, the country’s economic and political managers have come under severe challenge. The future of production, income and employment growth in the country depends on how they deal with these things.

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Today this Ministry has become such a centerpiece, where efforts are made to provide information, participation and simplification on all issues related to migrant Indians. There are four executive services departments of this ministry: 1. Overseas Services, 2. Financial Services, 3. Travel Services and Management Services.